Financing deal at Silverado Senior Living proves company has a business model that works

Loren Shook, chairman, president and CEO, Silverado Senior Living Inc.

A lot of people gave money to help Silverado Senior Living Inc. become a national leader in providing care to people with memory impairments. Fourteen years later, Loren B. Shook felt like it was time to give them a return on their investment.

“We made stock options to many staff members through those years,” says Shook, the company’s co-founder, chairman, president and CEO. “No one got paid anything. All of the money we made went back into expanding the company. At some point, we needed to monetize peoples’ investment.”

In addition to Shook, his co-founders, James P. Smith and Steve Winner, and those staff members, investments were also made by the private equity firm Riordan, Lewis & Haden. This funding was instrumental in building a company that has 2,800 employees and provides invaluable care to senior citizens who need it across eight states.

“A lot of people think it’s just about the money, getting the equity and the debt partners,” Shook says. “But money is just part of it. The bigger part is what kind of partner are they going forward with you?

“All of them understood the vision of the company, which was to give life to our residents in our assisted living communities, our clients in home care and our patients in hospice. The vision is to give life to their families and give life to each other as associates and colleagues in the company.”

Shook knows all too well that without money, none of it would be possible and that Silverado Senior Living would have never gotten off the ground. But the financials have never been his focus and he strongly believes that is a key reason why the company is so successful today.

And so it was through that prism that Shook and his team set out to find a way to provide a return on past financial investment while simultaneously strengthening Silverado for many more years of meaningful patient care.

Find your soul mate

One of the best options that the Silverado team initially came up with was to take the company public. But as they began to look at what that involved, they quickly soured on the idea.

“Every year, you’re spending $1.5 million to $2 million for accounting and legal fees just being a public company,” Shook says. “You’re taking up a lot of time for the CFO and CEO that could otherwise be providing service more directly to our customer base.”

Soon, their thoughts turned to Health Care REIT, a real estate investment trust that had been working side by side with Silverado since its inception.

“REDIEA is an acronym that stands for Real Estate Development Investment Empowerment Act,” Shook says. “It was very new. Health Care REIT had done one REDIEA with an LLC corporate structure. We’re a C-corp. It was a very detailed process. It took a lot of action to overcome a lot of hurdles that had never been addressed before.”

One of the biggest hurdles in any business deal is the relationship between your company and the financier you want to partner with. Shook flashes back to 1996, when he and Smith were looking for financial support to start Silverado.

“Whenever I started a meeting with a potential financial partner where there was equity or debt, I always started the meeting by telling them what the vision of the company was,” Shook says. “If they didn’t have an interest in the vision and the purpose, the meeting was over because we were not in alignment.

“A lot of experts in raising money would say, ‘Don’t do that. Go down the path of return on investment, the capital you need and the numbers.’ I never believed that was the right way to start a meeting because it’s more than just about the numbers. No one I met with was upset that I started the meeting that way.”

The fact that Silverado had built an established relationship with Health Care REIT over the years made it a lot easier to move the process along with the REDIEA. But that relationship only developed because Shook and his team took the time in the beginning to find partners who shared their vision.

One of the most important things you can do to help you find that kind of partner is to talk to people who have done business with the investor in the past and ask what happened when trouble arose.

“Tell me the hard times you went through and what it was like,” Shook says. “I want to know that I have a partner that has the experience and has been through the ups and downs and is going to be by my side when we’re going through difficult times.”

As Shook looked to finalize the REDIEA deal, he wanted to make sure there was alignment and a shared vision, just as there had been 14 years earlier.

Lean on your culture

As the REDIEA deal was being consummated, Shook was also very aware of his staff and the responsibility he felt to keep them appraised of what was happening. But he also felt confident he had established a track record of trustworthy leadership.

“The culture has to be there before big decisions come about,” Shook says. “You don’t create the culture at the time you have a big decision where you need people to be confidential and you need people to come to you and say, ‘I heard what you said in the conference call. But here’s what I’m worried about, Loren.’ You have to have that kind of open trust in the company. That has to be there before those issues come up.”

Shook shared what was happening with his senior leadership team and asked them to keep it from going public since the deal was still being finalized. He shared the good parts of the deal being discussed with Health Care REIT and the cons.

“There’s always a negative side to everything we do,” Shook says. “Here are the pros, here are the cons and here are other alternatives of what we could do to capitalize.”

Shook reiterated that there was no pressure being made to enter into this kind of deal from anyone.

“Riordan, Lewis & Haden wasn’t saying that you have to recapitalize the company,” Shook says. “They were very patient. It was just the right time and the right thing to do.”

Shook says finding employees who can thrive in your culture and have trust in the way you do things requires a similar approach as when you’re doing your due diligence on possible lenders.

“Our vision is to change peoples’ lives,” Shook says. “So people who work within a company like our’s, in order for the culture to exist, would have to have an alignment or purpose in life with that. Their individual purpose in life doesn’t have to be the same purpose, but it needs to be something that is compatible with the major purpose of the company.”

In order to stay healthy, a culture needs to be such that it can allow people to leave without creating a big problem. Even the strongest culture has people who sometimes lose their connection to the organization.

“Lives will change,” Shook says. “Where it was the right place to be before, maybe it’s not anymore. We want people who get more than they give out of working at Silverado. We want the company to get more than it gives out of having that person work with us. If both are positives, it’s a tremendous source of energy coming together. If one is negative, there is a drain on that energy and a drain on that company.”

Believe in what you do

With a strong relationship with Health Care REIT and a strong culture that trusted in its leadership, Silverado was ready to make a deal. The $298 million partnership closed in January 2011.

“Technically, we did sell the company,” Shook says. “But all of us investors, including Riordan, Lewis & Haden reinvested a great deal of money back into the company. I personally reinvested 50 percent of my proceeds back into the company.”

Silverado is poised to continue growing with seven new communities under construction, joining the 23 communities, eight hospice offices and five home care offices already up and running. Another hospice office and home care office are also in the process of opening.

“Before we started in this industry, people said the model we pursued would not work,” Shook says. “They said we would be bankrupt right away because they couldn’t connect the things we do. They would say it’s either a medical model or a social model and they couldn’t understand how both could happen.”

Shook is confident the results have proven those critics wrong.

“People who invest in business want to make a difference too,” Shook says. “If you get a good return on your investment and make a difference in peoples’ lives as well, then you will win attracting that capital to your company compared to somebody else who is just giving them a return.”

One of them is to understand my own strengths and bring in people who have strengths that I do not have. In other words, I don’t want to spend my energy trying to do things that are not my strengths. I’m good at seeing things that can happen that are disparate or ideations, or seeing things that people don’t see and then connecting them.

I can put together the big picture deals like a REDIEA, but I’m not good at the details. Tom Croal, my CFO, he’s good with the big picture. But he’s also terrific with the details. There are enormous numbers of them and he’s very good at that. So I have a CFO who is excellent at that and I’m not.

Shook on value: People will pay for what they value, and I should not impose my financial limitations on them. I don’t know their means and I don’t know what they value. I couldn’t afford to have a person living at home 24/7 taking care of a loved one. So one would think, ‘Who can afford that and why provide that as a service?’

Well, nonsense. We have a number of people we take care of at home 24/7 and there are plenty of people who can afford that. It’s expensive, but it’s not a problem for them. If they can afford it, they should be able to have access to that service.

We’ve taken someone’s mother with Alzheimer’s on a cruise to Mexico. We staff it 24/7 and make that cruise possible and she has a great time. Don’t put your limitations on what other people want.

Takeaways:

Vet your financing partners.

Stick to your culture.

Don’t give in to doubt.

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